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Archive for 2012

The Opportunity Cost of Water

With the continuing drought in South Texas, the issue of how to allocate scarce water resources has flared up again. Rice farmers south of Austin want water from the Colorado River for their crops; yet the two storage lakes on the river, which provide most of the Austin area’s drinking water, are less than half full.  As one rice farmer told the the Austin American-Statesman: “Water availability should be based on sound hydrology and not on political pressure.” It should be based on neither—it should be based on economics—what is the opportunity cost of the water?  In particular, one might ask why the U.S. is growing rice at all.  It is hard to believe we have a comparative advantage in rice-growing and that it shouldn’t all be imported.  That’s especially true about rice grown in dry South Texas. We grow rice because of entrenched interests that obtained water rights many years ago.  The rice farmers get heavily subsidized water precisely because of the political pressure this man deplores—and they now want to compound the effects of bad policy.



An Economist's Guide to Year-End Charitable Giving

The end of the year is a giving season for many (I suppose a cynical economist might think tax deductions has something to do with it).  Most of us like to make sure we’re making well-researched and wise decisions when it comes to our money, be it reading the online reviews before a purchase or investing our savings. By contrast, donating to charities can seem like a “black box.”  Many of us our rely on what feels right or seek out an organization in an area we have a personal connection to, but examining some bad habits about charity giving might help make sure our dollars go farther this giving season.

Bad Giving Habit #1: Choosing based on low overhead and fundraising expense ratios

Administrative expenses tell you nothing about if the charity’s work actually does anything, or if it does, how much good it does. The proper question to ask should be “for every $1 I give, how much good is generated?” and not care about how the sausage is made. Different organizations might have different business models, and two organizations might approach the same problem, say clean water in poor villages from two different approaches – perhaps digging new wells versus cleaning existing water sources. Don’t ask who spends less on expenses like copier toner and legal costs, ask which organization will get clean water to the most people with your money. I went into this in more detail in a post a while ago, and when I compared charities’ ranks on a site that rank using overhead ratios, to a site that does thorough research on effectiveness, organizations that were rated as more effective also tended to have slightly higher expense ratios.



Do We Really Tip Based on the Waiter's Service?

For whatever reason, tipping is a subject that always seems to fascinate. Maybe it’s because it represents a sort of shotgun marriage between economic behavior and “normal” behavior (i.e., profit-maximizing and altruism). In that light, a reader named Joshua Talley raises an interesting question. I am interested to hear your replies.

I’ve been a waiter for years.  I pride myself on providing prompt, professional service.  But I’ve always wondered how much the quality of service impacts the tip. Despite the notion that the tip reflects the quality of service, it seems likely to me that aside from instances of extremely good or extremely poor service, most people simply tip what they normally tip.  For instance, some people are 10 percenters, many are 15 percenters and some are 20 percenters, etc., and it takes either very good or very poor service to change this.  Am I right?



How Much Does a Good Boss Really Matter? (Ep. 107)

Our latest Freakonomics Radio on Marketplace podcast is called “How Much Does a Good Boss Really Matter?”  (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) 

It’s based on a recent working paper called “The Value of Bosses” (abstractPDF) by Edward LazearKathryn Shaw, and Christopher Stanton. In the podcast, you’ll hear Lazear describe the basic problem:

LAZEAR: Suppose you look at a firm and you see that the firm is highly productive. Well, it may be highly productive because it has productive workers, because it has productive technology, or because it has good supervisors that are enhancing the productivity of the workers, and it’s not so easy to tease out one effect from another.

So how can you measure the impact of the bosses? Data, people, data. And Shaw came up with a huge data set from a company that included roughly 23,000 employees and 2,000 bosses.



FREAK-Shot: Christmas Ornament Edition

Reader Tim Kelly sends in photo from a store in Lombard, Illinois:

As Tim writes:

I spotted an interesting sign while out Christmas shopping the other day.  The sign stated the company’s “breakage policy,” where any broken item must be bought, but that the store will only charge half price on the broken item.  The sign continued offered to repair the broken item, free of charge (I confirmed the free repairs from the shop owner, as it is not explicitly stated in the sign).

The sign was located on a mall kiosk selling Christmas ornaments.  I imagine breakage is a big issue for such a shop, as their product is relatively fragile and are highly enticing to bored kids stuck Christmas shopping with their parents.

My initial instinct upon seeing the sign was that this policy seemed to be inviting people to game the system.



In Response to Your Queries About Gun Violence…

We’ve gotten a lot of requests to comment on the massacre in Newtown, Ct., especially regarding the issue of guns. I haven’t done so because I don’t feel I have anything meaningful to contribute at this time, especially to the victims’ families, except for my deepest sympathy.

I will point to some things we’ve already written on the topic: Chapter 4 of Freakonomics, pp. 130-133; a quorum on how to reduce gun deaths; and a Q&A with the photographer-author of Armed America. And we are starting to produce a podcast about gun violence, to be released sometime in the spring.

Wishing everyone a more peaceful holiday season than the tragic events in recent months have prepared us for…



Why "Peak Farmland" Is Good News

First there was “peak oil“; now there’s “peak farmland.” But it’s not what you think. Reuters reports that a group of scientists from the Program for the Human Environment at Rockefeller University just released a report detailing their findings:

The amount of land needed to grow crops worldwide is at a peak and an area more than twice the size of France can return to nature by 2060 due to rising yields and slower population growth, a group of experts said on Monday.

The report, conflicting with U.N. studies that say more cropland will be needed in coming decades to avert hunger and price spikes as the world population rises beyond 7 billion, said humanity had reached what it called “Peak Farmland.”

“Happily, the cause is not exhaustion of arable land, as many had feared, but rather moderation of population and tastes and ingenuity of farmers,” says Jesse Ausubel, the study’s lead author.

(HT: Free Exchange)




Is Changing the Coach Really the Answer?

Much of the focus today on college football is on the teams at the top.  Will Notre Dame win the national title and finish undefeated? Can Alabama win another championship?  Then there are the 34 other bowl games.  In all, 70 teams have an opportunity to finish the year as a winner.

For those without this opportunity, though, this past season was a disappointment.  For these “losers,” the focus these past few weeks has been strictly on preparing for the next season.  And part of that preparation appears to be changing the head coach.

Already, at least 25 schools have announced that the head coach from 2012 will not be on the sideline in 2013.  For some, this is because a successful team lost their coach to another program.  In many instances, though, teams have asked a coach to depart in the hope that someone else will alter their team’s fortunes.



A Clarification on the Immaculate Reception (and Conception)

In the “Immaculate Reception” documentary that premiered last night on the NFL Network, I was called upon to discuss the religious provenance of the play’s name. Here’s what I say in the program:

People thought it was about the Virgin Birth. It wasn’t about Jesus. It was about the Immaculate Conception, where Mary is visited by an Angel of God and therefore becomes pregnant without having been touched by sin.

So I started out on the right track, by clarifying that the Immaculate Conception is a different event than the Virgin Birth, that it refers to the conception of Mary, not of Jesus. But then the explanation gets garbled as I plainly misspoke — said “Mary” instead of “Mary’s mother,” or “Anne.”

I’ve already heard from several viewers, and I apologize for the error and the confusion. I will talk to the producers about perhaps getting it straightened out. I guess that’s why I prefer writing to talking — you can plainly see your errors and fix them before they become real!



"Our Solar System Is a Bit of a Freak"

In a paper to be published in Astronomy & Astrophysics, researchers say they have found that “Tau Ceti, one of the closest and most Sun-like stars, may host five planets, including one in the star’s habitable zone.”

Very interesting quote from Steve Vogt, a professor of astronomy and astrophysics at UC Santa Cruz, who is one of the paper’s authors:

“We are now beginning to understand that nature seems to overwhelmingly prefer systems that have multiple planets with orbits of less than 100 days. This is quite unlike our own solar system, where there is nothing with an orbit inside that of Mercury. So our solar system is, in some sense, a bit of a freak and not the most typical kind of system that Nature cooks up.”

This is, among other things, a good reminder that the local patterns you are familiar with are not necessarily representative of the broader world (or universe!). It is easy, and tempting, to assume that the politics/family dynamics/fill-in-the-blank that you see around you daily is common elsewhere; but often, it’s simply not.



The True Rise in Cost of Living

For more than eight decades, some of the smartest people in the economics business have worked on index-number theory.  The basic issue is how to measure price inflation.  A few years ago the government (Bureau of Labor Statistics) started publishing measures (chain-weighted price indexes) that no longer fail to account for consumers constantly shifting the bundle of goods they buy toward those whose prices are rising less rapidly, as the standard CPI does.  Consumers do substitute when relative prices change, and the new measures recognize this.

This issue is technical, but it has become crucial in the “fiscal cliff” discussion.  Republicans wish to use the new measure to index (link to inflation) benefits of transfer programs, particularly Social Security (OASDI).  Liberals don’t like this — it will slow growth of incomes among Social Security recipients (me included).  I hate to say it, but the Republicans have it right on this one: using a chain-weighted price index better reflects the true rise in the cost of living.  If we are indexing benefits, as we have now for many years, it should be done properly.  And here’s a case where economic theory, coupled with careful applied research by a government agency, has produced the right answer.  It’s time to use it.



Everything You Need to Know About the Immaculate Reception

Tonight, at 8pm ET, the NFL Network is airing an hour-long documentary about the Immaculate Reception (video preview here), which took place 40 years ago this weekend.

If you are any kind of football fan, you know the Immaculate Reception as one of the unlikeliest and most dramatic moments in sports history. It is also loaded with myth and conspiracy theories, which makes it ripe for a documentary. The play remains such a big deal in Pittsburgh that the city’s airport features, right alongside a statue of a young George Washington, a statue of a young Franco Harris, mid-reception. It is the kind of monument that fathers show their sons when they take their football pilgrimages to Pittsburgh:



A Solid Fiscal-Cliff Plan

As Republicans and Democrats continue to bicker about spending and taxes, the Onion has stepped in with an excellent plan for averting a fiscal crisis:

STEP ONE: Eliminate school breakfast and lunch programs, Medicaid, the Consumer Product Safety Commission, the Environmental Protection Agency, Medicare, PBS, New Mexico, elk, the Coast Guard, and all dams.

And, our favorite, Step Three:

STEP THREE: Eliminate federal prison system by converting U.S. territory of Guam into an unsupervised penal colony known as “The Gauntlet.”



Will Florida's Python Hunt Get Hit By the Cobra Effect?

A number of readers — an astonishingly high number, in fact — alerted us to a story about Python Challenge 2013, an effort by Florida’s Fish and Wildlife Conservation Commission to “enlist both the general public and python permit holders in a month-long harvest of Burmese pythons” for the sake of “[i]ncreasing public awareness about Burmese pythons and how this invasive species is a threat to the Everglades ecosystem.”

The hunt, starting Jan. 12, offers a cash prize of $1,500 for “the participant harvesting the most Burmese pythons” and $1,000 for “the participant harvesting the longest Burmese python.” (There are actually two prizes of each amount: one for the General Competition and one for the Python Permit Holders Competition.)



Adventures in Ideas: How Music Gets Popular, Q&A with Jennifer Lena

I recently read a terrific book by sociologist Jennifer Lena, Banding Together: How Communities Create Genres in Popular Music. She explores the factors that influence the spread of musical taste — why some genres, bands, etc., gain popularity. Jennifer’s research is impressive because of the range of her exploration — according to her publisher’s website, she covers “rap to bluegrass to death metal and South Texas polka.”

Jennifer is helping redefine our understanding of social influence — what and who matters, and how ideas and tastes spread in complex social networks. I had a chance to ask Jennifer a few questions about her work. 

Q. You are interested in factors that determine whether particular musical styles, genres, etc., will gain mass appeal — or remain circumscribed to a small niche. Have you discovered something about the process of “influence” or “contagion” that the social network scholars have ignored or underemphasized? What does your work tell us about the role of networks in shaping popular tastes? 

A. The most common way for music to blow up from a small scene into global pop is for a controversy to erupt.



The Opportunity Costs of Cheap Paper Towels

My university uses thin brown paper towels in all bathrooms. They cost less than white paper towels.  My student claims that the opportunity cost of student and faculty time in extra hand-wiping because the brown towels absorb so little moisture means that the social cost of brown towels exceeds those of white ones. (I sympathize—my practice on this is take towel, rub, then finish drying hands on jeans!) This makes sense to me—with a captive group of users, the university is minimizing its private cost, not social cost.

Another student, an Iraq veteran, writes that the armor on the vehicles he rode in was too thin to offer proper protection to soldiers, government behavior that he claims is similar to that of the university—in this case, undervaluing its soldiers’ lives.  This seems less logical—surely the U.S. Army is greatly interested in protecting its soldiers and is willing to incur huge costs in doing so.  I hope/pray that my soldier-student is wrong.  (HT: JC.)




Don't Walk and Text

Our motto has always been “friends don’t let friends walk drunk.” We might have to add texting to that list. A new paper from BMJ Group shows that walking and texting is really not a good idea. The study looked at more than 1,000 pedestrians in Seattle, and found texting to be a particularly troublesome distraction:

Texters took almost two seconds (18%) longer to cross the average junction of three to four lanes than those who weren’t texting at the time.

And they were also almost four times more likely to ignore lights, to cross at the middle of the junction, or fail to look both ways before stepping off the curb. 

In a country where more than 4,000 pedestrians are killed each year in traffic accidents, it seems sensible to do what we can to decrease our chances. The authors write:

Individuals may feel they have “safer use” than others, view commuting as “down time,” or have compulsive behaviors around mobile-device use. … Ultimately a shift in normative attitudes about pedestrian behavior, similar to efforts around drunk-driving, will be important to limit the … risk of mobile-device use.



Have a Very Homo Economicus Christmas (Ep. 105)

Our latest Freakonomics Radio on Marketplace podcast is called “Have a Very Homo Economicus Christmas.” (You can download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.) 

It’s the latest in our annual series of explanations about how economists can take all the fun out of the holidays. In the past, we’ve looked at gift cards, deadweight loss, and gift registries.

This year, we have one simple mission: ask economists how they go about shopping for the holidays.



FREAK-Shots: Tequilanomics, and Fenway Gas

From a reader in Annandale, Va., named Christopher Galen, who earlier sent in his daughter’s third-grade economics quiz (never too young to start!), comes this pricing quirk:

That’s right: the cost per unit is cheaper on the smaller version, which isn’t the kind of pricing we’re accustomed to in this supersize-me era. (For an interesting related read, see “Does Food Marketing Need to Make Us Fat?” and a Forbes summary of same.) As Christopher writes:

I’m passing along a photo I took Friday at one of the state-run ABC liquor stores in Fairfax, Va. … Neither [bottle] was on sale, and it contrasts with most other liquor offerings, where larger product offerings tend to have a lower unit cost.

Which led me to wonder — and no, I had not done any in-store sampling — is this simply the counterintuitive marketing strategy of a state-run enterprise? Is the store trying to discourage excessive alcohol consumption by making smaller product sizes less expensive?



From Horse Power to Horsepower to Processing Power

Some thinkers make their reputations by focusing on social justice, economic progress, or global sustainability. I took the low road and went for horse manure. It was my article on filth, flies, and putrefying horse carcasses in the 19th century city that brought me to the attention of Dubner and Levitt and, for better or worse, to this site. FYI, the article is here.

If you do peruse it, you’ll see I ended with the hope that technology will bail us out of our transportation problems just like it bailed us out of those caused by the horse. At that time, a deus ex machina descended from the heavens to improbably solve the insoluble. The savior was known as the automobile, and as it went from obscurity to ubiquity in a few decades it banished the working horse—a primary mode of transportation for thousands of years—to oblivion.

There was only one problem with my call for a miraculous technological fix: I did not have the slightest idea what that technology would be.



The Cost of Booing

From a reader who goes by grunzen:

I heard you talk about booing in your podcast and you mentioned Santa Claus getting booed by Philadelphia’s notorious “boo birds.”  I think I can do you one better.  In ESPN’s “30 for 30” documentary on the Baltimore Colts marching band [The Band That Wouldn’t Die, directed by Barry Levinson], they mention how they were going to take the field before a Philadelphia Eagles game and that they were scared.  This was because just prior to that, they had booed a little kid that had missed four passes in a contest.  Now I can kind of understand booing some scraggly, disheveled Santa Claus (they mention this in the documentary).  But a little kid in a contest?  That’s the most extreme booing story I’ve heard.



Fryer and Levitt Go Ghetto

In academia, it is seen as an honor when someone wants to reprint one of your published papers in an edited volume of collected papers. It is really an honor if someone wants to take the time to translate it into another language.

Roland Fryer and I feel so honored.

Back in 2004, Roland and I published a piece in the journal Education Next describing our research on racial test-score gaps. That paper was recently translated into ghetto English. The new version is here. It is a must-read (although very, very NSFW). Usually something gets lost in the translation, but I would say in this case it is an improvement.



Demand for Movie Ads

The hit movie of a few weeks ago was Breaking Dawn Part 2, which several of my grandkids saw on opening night.  A grandson reports that at the first showing there was a full 30 minutes of advertisements before the movie, more than he’d ever seen. He figured correctly that the captive audience (people lined up for hours to see the first showing) would fill the theater immediately, implicitly increasing the demand for advertisements.  That made the advertising time more valuable, so the theater responded by offering more ads. I would bet too that they charged the advertisers more per minute for the right to show their ads—implicitly thus increasing price as well as quantity.  (HT to SCH)



Bad Incentives That Work Quite Well: The Opportunity Cost of Political Partisanship

Nick Kristof, writing in the N.Y. Times:

This is what poverty sometimes looks like in America: parents here in Appalachian hill country pulling their children out of literacy classes. Moms and dads fear that if kids learn to read, they are less likely to qualify for a monthly check for having an intellectual disability.

Many people in hillside mobile homes here are poor and desperate, and a $698 monthly check per child from the Supplemental Security Income program goes a long way — and those checks continue until the child turns 18.

And:

This is painful for a liberal to admit, but conservatives have a point when they suggest that America’s safety net can sometimes entangle people in a soul-crushing dependency. Our poverty programs do rescue many people, but other times they backfire.



Do Politicians Respond to Emails?

Writing at the Monkey Cage, political scientist Cristian Vaccari describes his research about how  political candidates, who often rely heavily on email lists, actually respond to emails:

As part of a broader study of the online presence of parties, party leaders, and Presidential candidates in Australia, France, Germany, Italy, Spain, the U.K., and the U.S., I tested whether and how rapidly their staffs responded to two types of emails (sent from separate fictitious accounts in the official language of each country): one asking for their positions on taxes (a cross-cutting issue that should not strongly differentiate between different types of parties), the other pledging to be willing to volunteer for them and asking for directions on how to do so. Emails were sent in the two weeks prior to national elections between 2007 and 2010 to a total of 142 parties and candidates. The results speak volumes to the lack of responsiveness among political actors: excluding automated responses, only one in five emails received a reply within one business day.



The Man Who Changed Professional Sports

Marvin Miller passed away last week.  When this happened I immediately began work on a post detailing the important impact Miller’s work — as the first leader of the Major League Baseball Players Association — had on sports.  And then I noticed that many other people had the same idea (see Jayson Stark, Jon Wertheim, Lester Munson, and Richard Justice – among many others).  Given all the wonderful writing on Miller’s life and career, I decided to focus on how Miller impacted our understanding of both sports and economics. 

Such a post… well, I could write more than a few thousand words on just that topic.   Since few people want to read that many words at a blog, I am going to focus on Miller’s work to end baseball’s reserve clause (and what that has meant for baseball, sports, and economics).

Our story begins back in the 19th century. As noted in a wonderful article by E. Woodrow Eckard in the Journal of Sports Economics, the National League began in 1876 with a labor market quite similar to the markets we tend to observe outside of sports. 



Americans Inconsistent on Financial Risk

A new paper in the American Economic Review (abstract; PDF), summarized here, finds that Americans aren’t very consistent when thinking about financial risk. Liran Einav, Amy Finkelstein, Iuliana Pascu, and Mark R. Cullen, analyzing how people choose health insurance and 401(k) plans, found that “at most 30 percent of us make consistent decisions about financial risk across a variety of areas.”  Their data set includes 13,000 Alcoa employees:

Because employees were making decisions in both the health-care and retirement domains, the researchers had the opportunity to see how the same individuals handled different types of choices. Or, as Finkelstein puts it, the economists could ask: “Does someone who’s willing to pay extra money to get comprehensive health insurance, who doesn’t seem willing to bear much financial exposure in a medical domain, also tend to be the one who, relative to their peers, invests more of their 401(k) in [safer] bonds rather than stocks?”



Thanks for the Stitcher Award!

Freakonomics Radio, which recently celebrated its 100th episode, got a piece of happy news the other day: a Stitcher Award. Thanks to Stitcher and to everyone who voted, and thanks especially to our amazing production team: Suzie LechtenbergKatherine WellsDavid HermanBourree LamCollin Campbell, and Chris Bannon. Congrats also to all the other winners. It is amazing how much talent and great content is floating around in the podcast pool these days.